Difference b/w VTSAX and Vanguard UK Mutual fund [UK]

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Topic Author
arajeshn
Posts: 19
Joined: Fri Jun 04, 2021 9:50 am

Difference b/w VTSAX and Vanguard UK Mutual fund [UK]

Post by arajeshn »

Hi,
I have been browsing through this site since 3Q-2020 and have found it very useful. After wasting years on searching for individual stocks, I have changed my whole investment philosophy after reading Allan Roth's book and this forum. This is my first post on this site.

I am a British citizen based in England. I hold investments in my UK ISA account as well as my personal SIPP (pension) account.

I have a question regarding investing in tracker mutual funds. Is there a difference in returns when I invest in VTSAX directly as compard to buying the UK equivalent offered by Vanguard UK https://www.vanguardinvestor.co.uk/inve ... nd-gbp-acc . I realise that I need to factor in the additional tax implications of investing in US funds as compared to investing in UK funds. However is there a difference in the returns of the two funds?

Thanks!
Genghis
Posts: 138
Joined: Fri Jun 26, 2020 6:53 am

Re: Difference b/w VTSAX and Vanguard UK Mutual fund [UK]

Post by Genghis »

Your broker shouldn’t permit you to invest in US domiciled funds due to PRIIPs regulations.

Even if you could, you should still invest in UK domiciled OEICs / ETFs or Ireland domiciled ETFs (not Ireland OEICs for reference). Holding a US domiciled fund would mean paying 30% withholding tax on dividends. On a 2% yield, this is a cost of 0.6%. The UK OEIC you mentioned suffers withholding tax of 15%, so a 0.3% cost, a 0.3% difference, enough to justify difference in other costs.

As a UK investor - I am one - your best bet is to hold a global equity fund. Why put all your eggs in one US basket in terms of US co performance and more USD exposure? Make it global.
Topic Author
arajeshn
Posts: 19
Joined: Fri Jun 04, 2021 9:50 am

Re: Difference b/w VTSAX and Vanguard UK Mutual fund [UK]

Post by arajeshn »

Thanks a lot - that's helpful.
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Difference b/w VTSAX and Vanguard UK Mutual fund [UK]

Post by TedSwippet »

Genghis wrote: Fri Jun 04, 2021 10:53 am Holding a US domiciled fund would mean paying 30% withholding tax on dividends.
Just to fix this ... the US/UK tax treaty specifies a 15% US tax rate for dividends paid by US corporations to UK residents, and to UK domiciled funds. So
for a UK investor investing through an ISA, the US tax drag on the Vanguard U.S. Equity Index Fund (UK domiciled fund, from Vanguard UK) and VTSAX (US domiciled fund, from Vanguard US) would be the same.

An interesting quirk of the US/UK treaty is a 0% US tax rate for dividends paid by US corporations to UK pension funds. So holding VTSAX would be more tax-efficient for the UK investor using a SIPP than the UK domiciled Vanguard U.S. Equity Index Fund.

All entirely academic though, since US domiciled funds such as VTSAX are not available to UK investors, either in ISAs, SIPPs, or general trading accounts. And since Jan 2018, nor are US domiciled ETFs, because of EU/UK PRIIPs regulations.
Topic Author
arajeshn
Posts: 19
Joined: Fri Jun 04, 2021 9:50 am

Re: Difference b/w VTSAX and Vanguard UK Mutual fund [UK]

Post by arajeshn »

Thanks
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